Kemi Badenoch: Clause 98 and schedule 20 reform the use of polluting diesel fuel by reducing the number of businesses that benefit from red diesel tax breaks from April 2022. Those changes will mean that most businesses across the UK will use diesel fuel taxed at the standard rate for diesel from April 2022, bringing them in line with ordinary motorists. That more fairly reflects the negative environmental impact of the emissions produced. It also ensures that the tax system incentivises users of polluting fuels such as diesel to improve the energy efficiency of their vehicles and machinery and to invest in cleaner alternatives, or just use less fuel.
Red diesel is a dye-marked diesel currently used mainly for off-road purposes, such as to power bulldozers and cranes in the construction industry. It accounts for around 15% of all diesel used in the UK and is responsible for the production of nearly 14 million tonnes of CO2 a year, as well as noxious gases such a nitrogen oxide and particulate matter. Red diesel is subject to a rebated rate of fuel duty of 11.14p per litre, which is 46.18p less than the tax due on standard diesel used by ordinary motorists. Businesses that use red diesel are therefore paying far less for the harmful emissions that they produce.
The Government have previously received feedback from developers of alternative fuels and technologies that they view the low cost of running a diesel engine as a barrier to entry for greener alternatives. Clause 98 and schedule 20 will amend the Hydrocarbon Oil Duties Act 1979, to reform the entitlement to use red diesel in most sectors from April 2022. As announced at Budget 2020 and confirmed at Budget 2021, the Government will grant entitlements to use red diesel for the following purposes: for vehicles and machinery used in agriculture, forestry, horticulture and fish farming; to propel vehicles designed to run on rail tracks and for heating non-commercial premises, which includes the heating of homes and buildings such as places of worship, hospitals and town halls.
In addition, following consultation last year on these tax changes, for which the Government received more than 400 written responses, the Government decided at Budget 2021 to grant further entitlements to use red diesel after April 2022 for the following purposes: electricity generation in non-commercial premises; maintaining community amateur sports clubs and golf courses; as fuel for all commercial water vessels refuelling and operating in the UK, including fishing and water freight industries; for private pleasure craft in Great Britain; and powering machinery and caravans of travelling fairs and circuses. The Bill will also extend fuel duty to biodiesel, bioblends and fuel substitutes used in heating.
In response to concerns raised by red diesel users during the consultation about their ability to run down fuel stocks in back-up generators, the Bill provides for secondary legislation to give HMRC officers the power to disapply the liability to seize vehicles or machinery where they are satisfied that those who are no longer entitled to use red diesel are acting within the new law.
New clause 3, which was tabled by the hon. Members for Glasgow Central, for Glenrothes, for Gordon (Richard Thomson) and for Midlothian (Owen Thompson), would require the Government to publish a report on the effects of clause 98 on progress towards the UK Government’s climate emissions targets
“within six months of the passing of this Act.”
Clause 98 will make changes to remove the entitlement to use red diesel from most sectors from April 2022; such a report could not meaningfully assess the impact of the changes within six months.
As the Government set out in our summary of responses to the red diesel consultation:
“As these tax changes are introduced, the government will monitor fuel duty receipts of red and white diesel to evaluate the extent to which current users of red diesel that have lost their entitlement to use red diesel are switching to greener alternatives. The Treasury will also work closely with the Department for Business, Energy and Industrial Strategy to evaluate the extent to which these tax changes are accelerating the development of greener alternatives and how this interacts with the work of the government’s energy innovation programmes, like the Net Zero Innovation Portfolio.”
The Government continue to take our world-leading environmental commitment seriously and remain dedicated to meeting our climate change and wider environmental targets, including improving the UK’s air quality; that is why we are reforming the use of red diesel from April 2022. Reducing tax breaks on red diesel will mean that approximately 3.6 billion litres of diesel, equivalent to 9.5 million tonnes of CO2, will now be taxed at the standard diesel rate. I ask the Committee to agree that clause 98 and schedule 20 should stand part of the Bill and to reject new clause 3.

Kemi Badenoch: The clause makes changes to ensure that the long-haul rates of air passenger duty for the tax year 2022-23 increase in line with the retail price index. The change will ensure that the aviation sector continues to play its part in contributing towards the funding of vital public services.
Aviation plays a crucial role in keeping Britain open for business, and the Government are keen to support its long-term success. The Government recognise the challenging circumstances facing the aviation industry as a result of covid-19. Firms experiencing difficulties can draw upon the unprecedented package of measures announced by the Chancellor, including schemes to raise capital and flexibility with tax bills.
As APD is a per passenger tax, airlines’ liabilities have considerably reduced following the 87% decline in passenger demand caused by the pandemic between April and September 2020, when compared with the previous year. Aviation fuel incurs no duty and tickets are VAT-free, so APD ensures that the aviation sector makes a fair contribution to the public finances. Uprating APD rates in line with inflation is routine and has occurred every year since 2012. The Government announce the rates one year in advance, in order to give airlines sufficient notice of any changes.
The changes to be made by the clause will increase the long-haul APD tax rates for 2022-23 by RPI. The clause increases the long-haul reduced rate for economy class nominally, by just £2; and the standard rate for all classes above economy by £5—a real-terms freeze. The rates for long-haul travel by private jets will increase by £13. The rounding of APD rates to the nearest £1 means that short-haul rates will remain frozen in nominal terms for the 10th year in a row. That benefits more than 75% of all airline passengers.
APD is a fair and efficient tax, with the amount paid corresponding to the distance and class of travel of the passenger, and it is only due when airlines are flying passengers. The changes made by the clause ensure that the aviation sector continues to play its part in contributing towards funding our vital public services.